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How Inflation Works
- mikkergp 4y agoIf the current inflation is caused by external forces like the war in Russia causing gas prices to increase dramatically and impact everything, are we likely to see a period of deflation in a year or two?
- maldinii 4y agoI would say this is impossible to predict since is very much related to how the government & society would react.
- dellIsBetter 4y agoDid you see the inflation going down drastically between the period of july 2014 and jan 2016? This is not about the oil only!
- cjbgkagh 4y agoThe price inflation on sanctioned goods will only revert after the sanctions are lifted. Sanctions tend to last a very long time, so it seems like it’ll unlikely any time soon.
- deleted 4y ago[deleted]
- Borrible 4y agoWould love to see the war brought to ruzzia, not to Ukraine.
- cjbgkagh 4y agoI would not. I wanted this war to end before it started and I lement that many of my friends and family have now become blood thirsty warmongers. They see it as a chance to finally be a part or something fashionable and state sanctioned. An opportunity to openly hate where so much other hate is forbidden. I worry that we’re blindly and foolishly waking into a preventable WW3.
- Borrible 4y agoStill, no war in ruzzia, as in mikkergp's nonchalant statement. That there is a difference between ruzzia and Ukraine and ruzzia is denying this is the whole point of the affair. Beside, you can't bring the war to ruzzia, everybody knows, they will get away with their war crimes. They have nukes and they give a shit, plain and simple. Realpolitik.
- cjbgkagh 4y agoOh, I missed that, I read it as war in Ukraine. I'm guessing calling it the 'war in Russia' is an attempt at political correctness. Similar to calling Russia 'ruzzia'. I think my brain automatically converted both to the point I didn't notice either.
- Borrible 4y ago> I think my brain automatically converted both to the point I didn't notice either. So, there is a difference. Hopefully, some strong emotional biases have just affected your brain and not also your I.
- cjbgkagh 4y agoI find it difficult to follow your statement. Is that German grammar? I presume you're suggesting I'm under the influence of Russian propaganda.
- Borrible 4y agoActually I suggested, you demand a more rational approach regarding the ruzzian invasion of a souvereign Nation and at the same time imply things because of emotional bias.
- tylersmith 4y agoThe nationalism that's become out of vogue in the West is finally expressable through Ukraine. "Slava Ukraini!"
- readthenotes1 4y agoYou could have captured more of the inflation in fuel prices by saying "If Biden had not campaigned on stopping US oil production"...
- dellIsBetter 4y agoThe text said Innovation drives inflation up! So funny! Actually Innovation drives inflation down: Think when we need to send a letter and now we just send a text message, much less resources included!
- acilim 4y agoI think in the shorter term innovation does influence inflation a little bit. Like the article stated, if a product is new and offers some uniqe benefit everybody will want to buy it and that will drive demand up. Like first automobiles, internet, cellphones. Probably not a huge influence but not negligible.
- dellIsBetter 4y agoThe demand of digital cameras is down with new iPhone. Someone buy one new thing and do not on other, this is inflation neutral.
- acilim 4y agoYeah. I was thinking more about some things that are completely new. My examples aren’t the best.
- jeffreygoesto 4y agoYou'd have sent a tiny fraction of the messages you text now. Plus, you must include the hidden cost of all intermediate machines and infrastructure. I am not sure if it could end with a draw...
- dellIsBetter 4y agoOn only one interaction maybe you is correct. But not on 1B interactions.
- yyy888sss 4y agoYep, innovation means prices understate the true level of inflation. Eg: If technology reduces costs by 5% and the CPI measures 2%, then the real rate of inflation is at least 7%.
- radford-neal 4y agoThey quote Milton Friedman, "Inflation is always and everywhere a monetary phenomenon, resulting from and accompanied by a rise in the quantity of money relative to output", but they then ignore this while spouting much nonsense like "wage-price spirals", until finally mentioning monetary policy again at the bottom, in confused fashion (eg, contrary to their claim, mortgages are not money, either from the point of view of the borrow or of the lender). Now, Milton Friedman may have slightly exaggerated (or at least it's easy to interpret what he said in an exaggerated way). It is possible for the general level of prices to increase due to events such as wars that interfere with production, rather than because the money supply was increased, and that may be a current contributor to inflation. But mostly it's the government creating money. Deliberately. Inflation isn't something that "just happens". It's a deliberate policy choice by government.
- ouid 4y agoDont listen to any economist that is also popular enough to qualify as a politician. Entire generations on political discourse have centered around one hacks poor simplification.
- cjbgkagh 4y ago“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back” - JMK Edit: I always thought this was a cool quote, though in this case and many others I tend to agree with Milton Freedman. Perhaps it’s the voices in the air.
- AzzieElbab 4y agoPaul Krugman is keeping awfully quiet nowadays
- cjbgkagh 4y agoHis fax machine must have broke.
- sgarrity 4y agoSome great material here, but I think the real cause of inflation is due to the strain of trying to read on a page with too much animation.
- a-t-0 4y agoThe article states: "Inflation is an economic term that describes a general increase in prices." However, the European Central bank measures inflation in terms of purchasing power of consumption goods and services, not in terms of general increase in prices: https://www.ecb.europa.eu/ecb/educational/hicp/html/index.en.html https://www.ecb.europa.eu/ecb/educational/hicp/html/index.en...
- morninglight 4y agoThis would be a great high school teaching aid. Deflation is often confused with stabilization. Deflation would have prices returning to their pre-inflation numbers, whereas stabilization simply means that the rate of inflation returns to its previous value while prices remain elevated. Deflation is the stuff of fairy tales and dreamers. Realists pray for stabilization. .
- WanderPanda 4y agoDeflation is what technological progres giveth and the guys with the money printer taketh away
- yellow_postit 4y agoThe basket of goods approach always feels a bit off to me wrt capabilities, however I haven’t seen a compelling alternative. Yes the sedan I have now also gets me from point a to b with seating for 5 as it did in 1970 but the safety, efficiency, capabilities are all much more advanced. Less apples to apples and more red delicious to cosmic crisp.
- leobg 4y agoAt the same time, those extra safety and efficiency capabilities might be offset by the fact that they are much more vehicles on the road and gas prices how much higher than they were in the 1970s. Granted, gas prices in the 1970s might be a bad example. But it’s just very hard to measure added utility in the face of increased requirements of the society around you.
- superbaconman 4y agoMost commentators I hear point towards excessive spending as the primary cause of inflation, but I've been wondering: Absent supply chain interruptions, how does inflation manifest when price competition punishes the first one to raise prices?
- BurningFrog 4y agoA simple way to think about it: If everyone suddenly has twice as much money, suppliers will pretty soon run out of goods to sell if they don't raise their prices.
- wiredearp 4y agoAt this point I think we might as well admit that inflation is 100% caused by greed. It's funny because all the theories presented in the article - that inflation is caused by mandatory minimum wage, government regulation and taxes - is exactly what a greedy person would suggest.
- BurningFrog 4y agoSo, under this theory, why did greed increase so much in 2021, after having been mostly dormant for 1-2 decades?
- wiredearp 4y agoInflation will also decrease the value of greedy peoples money, so what happened in 2021 was simply that greed got out of control. If you are greedy, the best way to fight inflation is to raise prices and collect more money. Once people stop bying things altogether, greed will dictate that prices come down. It's a lot simpler than what the article gives it credit for.
- BurningFrog 4y agoNot quite sure, but I think you're saying greed didn't change, it just was "set free" for other reasons?
- bin_bash 4y ago> Adjusted for inflation the average cost of a movie ticket in the US in 1996 was: $5.46 Huh? Isn’t that not adjusted for inflation?
- yyy888sss 4y agoInflation is the expansion of the money supply (eg by money printing). A long term rise in prices (houses, stocks, CPI) is the consequence of inflation, just as a rising water level in a lake is the result of rain. The global economy is like a lake with growing capacity, so prices UNDERSTATE the true rate of inflation.
- thelamest 4y agoThis is not the common definition (cf. https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation), but a narrower one (https://en.wikipedia.org/wiki/Monetary_inflation https://en.wikipedia.org/wiki/Monetary_inflation). Semantic difference, but one that remains a little confusing and harkens back to old economic debates. Focusing on policy causes of price changes is preferred among authors who want to tie inflation only/mostly to central bank actions, but mainstream economics, with Friedman etc., works with a slightly wider model (money supply is a key lever, but other things matter as well).
- yyy888sss 4y agoDefining inflation as rising prices is the newer, MORE narrow definition as measurements such as CPI are capturing the downstream effects of a fundamental cause (creating money).
- whimsicalism 4y agoInflation is and always has been about changes in the price level. If velocity halves and money supply doubles, there is no additional price level change - so it is not a "fundamental cause."
- AnimalMuppet 4y agoIt's the expansion of the money supply faster than the expansion of the real economic output.
- whimsicalism 4y ago
- cf141q5325 4y agoInflation is inflation expectation. People (the market) starts behaving differently when they expect rising prices. Best thing i read on the topic is how the Brazilian hyperinflation was fixed https://text.npr.org/130329523 https://text.npr.org/130329523 Once you look at it from this angle most of this starts making a lot more sense. Especially post-Austerity monetary policy edit: tldr: They invented a new theoretical currency. All prices were each month listed in the actual price in the old currency and the price in the new currency (that didnt exist yet). And each month the new currency was redefined so that stuff still cost the same in the theoretical currency. They did this for a few months till they declared inflation fixed and creating the new currency that had "proofed" its stability the previous months. And Abrakadabra, people believed and inflation was fixed through the introduction of the Brazil Real. Obvious when you think about it, its not called fiat currency for nothing. >Say, for example, that milk costs 1 URV. On a given day, 1 URV might be worth 10 cruzeiros. A month later, milk would still cost 1 URV. But that 1 URV might be worth 20 cruzeiros. >The idea was that people would start thinking in URVs -- and stop expecting prices to always go up.
- Retric 4y ago> Inflation is inflation expectation. That’s assuming the government is continuing to print money. Without that, inflation is an exponential function that quickly runs into real world limits. That said why governments are printing money is often a very tricky problem. It can for example be used as a substitute for more obvious taxes in a highly corrupt society.
- cf141q5325 4y agoI assume you mean "isnt continuing" But that also doesnt seem to be the case. The question apparently is where that money is going. As long as it remains outside of the real economy it seems to be irrelevant. And even if it starts seeping into the real economy, it seems that the efficient market hypothesis is more of a belief then anything else. Which is no surprise if you realize that market inefficiencies allow you to make enormousness profits. Especially if you need to be a certain size to exploit them
- nayuki 4y agoA similar topic on the HN front page: "Show HN: A central bank simulator game with a realistic economic model" https://benoitessiambre.com/macro.html https://benoitessiambre.com/macro.html , https://news.ycombinator.com/item?id=31785199 https://news.ycombinator.com/item?id=31785199
- hitovst 4y agoKeep in mind that the sovereign individuals of the United States have only permitted congress the ability to coin gold and silver, and that legal tender "laws" are criminal. I have every right to make "Hitovst Nickels", and you have every right to not accept them. The crime comes with the gun in the room forcing you to accept them. "Dollar" is a term that includes silver. When corrupt US government debased the currency, it was no longer a dollar, but counterfeit. FRNs are not dollars. No fiat currency is a dollar." People, scam artist or no, should be free to create whatever currency they want.. it's the forcing others to accept it that is a crime.
- deleted 4y ago[deleted]
- photochemsyn 4y agoAt the end of 1970, the USA had an annual inflation rate of 5.8% and today, the annual inflation rate is 8.3%. Source: https://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_current https://inflationdata.com/inflation/Inflation_Rate/Historica... That was considered such a problem that Nixon's economic team took some radical actions (wiki) > "Nixon issued Executive Order 11615 (pursuant to the Economic Stabilization Act of 1970), imposing a 90-day freeze on wages and prices in order to counter inflation. This was the first time the U.S. government had enacted wage and price controls since World War II." In the current world, there's an additional major factor: exports of refined products (gasoline, diesel, jet fuel) and natural gas from the USA abroad, while very profitable for the refinery operators, are driving up prices domestically. Hence, another radical action that could be taken would be to raise export tariffs or actually ban these exports. This would drive down prices domestically and reduce the knock-on effects that high fuel prices have on delivery of food and other products. As far as Milton Friedman, that clown was never anything but a propaganda sock puppet for Wall Street, just like Alan Greenspan. Their idiotic theories gave rise to the 2008 economic collapse, and anyone recycling their discredited propaganda at this point in time is only making a fool of themself.
- whatever1 4y agoWhy in today’s interconnected economies do we try to solve inflation with internal economy tools (like interest rates)? If the raise of prices originates from inflated imported prices, why not set import high import taxes to reduce the imports and rejuvenate the local economy? Why do we have to suffocate our local economy to fight imported inflation ?
- mikkergp 4y agoIsn’t this what caused the Great Depression?
- readthenotes1 4y agoAny article on inflation that leaves off consumer expectations of inflation as a source of it isn't really serious about the topic.